Palo Alto Weekly

Budget shows Palo Alto turning the corner

Ten ways the city may change in 2014

by Gennady Sheyner

Ever since the world economy tanked in late 2008, budget season has been the dreariest of times in Palo Alto. Gaping deficits prompted the city to slash employee benefits; freeze police-officer positions; outsource some functions, such as printing and golf-course maintenance; and nearly outsource animal services before relenting in the 11th hour after intense community opposition.

Then, something changed. Business picked up, vacancies disappeared and property taxes returned to the pre-crash heights of 2008. In City Manager James Keene's proposed budget for fiscal year 2014, which begins July 1, the Great Recession is a faded memory. According to the document, which the City Council is set to discuss and approve on June 3, just about every major revenue source has rebounded in a big way since the distant days of 2009. Sales-tax revenues grew from $18 million in 2010 to $23 million in 2013, spurred by strong performance by the city's restaurants and electronics and apparel shops. Hotel-tax revenues — $7 million in 2010 — are projected to reach $10.4 million in 2013. Property taxes were $25.7 million in 2011 but are expected to total $27.9 million in 2013 and $29.1 million in 2014.

In fiscal year 2014, the city's revenues are projected to rise by 5 percent, or $7.6 million.

Keene's budget, for the first time since he was hired in 2008, proposes a host of infrastructure improvements, "unfrozen" positions and no service cuts. The General Fund, which pays for most basic services (not including utilities), would rise to $159.8 million, up 4.6 percent or $7 million from 2013.

Managers throughout City Hall are slated to have their salaries readjusted to match the median compensation of their peers in other cities. Motorcycle-riding traffic cops will once again patrol city streets. The Palo Alto Airport, operated until now by Santa Clara County, will now be run by Palo Alto. And spending on bike projects and street repairs will get a significant bump, belatedly underscoring the city's proclamation of 2011 as "Year of the Bicycle" and of 2012 as "Year of Infrastructure."

There are some clouds on the horizon. Water rates, for example, are set to rise by 7 percent on July 1, largely to pay for water-infrastructure improvements. And the costs of pension and health care benefits continue to rise at a rate far faster than revenues, a trend that the budget says is simply "unsustainable."

Still, if Keene's proposed budget is any indication, most of the changes that Palo Alto will see in the next year or two will involve additions rather than subtractions. Here are some highlights:

TAKEOFFS AND LANDINGS — In April, Palo Alto signaled its intent to go full-speed ahead with the takeover of its namesake airport when it landed Andrew Swanson as the city's airport manager, a new position. Now comes the hard work of getting Swanson an airport to manage. The new budget proposes a loan of $325,000 from the city's General Fund (which pays for most services not relating to utilities) to the new Airport Fund, to get the process off the ground. Santa Clara County, which has been operating the facility since 1967 and has been reluctant to make major upgrades, agreed to terminate its lease by the end of the year. It'll probably be at least another six months before all the paperwork is approved.

City Public Works Director Michael Sartor and Swanson have toured the facility to inspect its condition and discussed the needed improvements with the Federal Aviation Administration, which provides grants for airport fixes. Sartor told the City Council Finance Committee on May 16 that he is confident the airport could be a profitable operation. A 2011 analysis by Ralph Wiedemann and Associates showed that the airport would have generated up to $16.4 million in profits by 2037 if the city were to take it over by July 2012. That deadline has come and gone, but the city's optimism remains. Sartor said analysis "clearly shows that the airport can be a very major, functional, revenue-generating operation, and that's where we're heading."

HITTING THE PEDAL — When Palo Alto approved a broad and ambitious bicycle master plan last year, members of the City Council pledged not to let this plan languish like its predecessor, its lofty visions withering in a forgotten drawer. With the new budget, the city is putting its money where its mouth is. The proposed budget allocates $1.4 million for design work on a new bike bridge that will span U.S. Highway 101 over Adobe Creek. The bridge project has already received a $4 million grant from Santa Clara County, and more grant funding may be in the pipeline. Once completed, it will give south Palo Alto residents and employees a new pathway into the Baylands and help the city overcome one of its most formidable bike challenges — a shortage of decent east-west routes. The budget also allocates $1.3 million for other projects, which include bike boulevards, bike lanes and off-road trails.

BIRDIES IN THE BAY — Palo Alto's effort to inject a "Wow!" factor into its functional but unspectacular municipal golf course can be traced, in many ways, to the early morning of Feb. 3, 1998, when a violent storm caused the San Francisquito Creek to spill over local bridges, submerging entire sections of Palo Alto, East Palo Alto and Menlo Park. Fifteen years later, help is on the way as the San Francisquito Creek Joint Powers Authority prepares to break ground on a flood-control plan that will widen a channel and rebuild levees in the Baylands, including a levee that would infringe on Palo Alto's golf course.

The agency's plan would have required the city to relocate six to seven of the course's holes. Instead, the City Council decided to use the flood-control project as an opportunity to completely overhaul the 18-hole course and to imbue it with natural plants, muted colors and other design elements aiming to emphasize its Baylands location.

According to the 2014 budget, the $8 million project aims to "reinvent the golf course in order to attract new users and increase revenue." It helps that the creek authority will chip in about $3 million. The balance will be financed through bonds that will be repaid from golf revenues. To sweeten the deal even further, the golf course's redesign will also create space for three athletic fields, addressing what the budget calls "a chronic shortage of fields in the city."

TAKING IT TO THE STREETS — Palo Alto's war on potholes began three years ago, when the city upped its annual street-paving budget from $1.9 million in fiscal year 2010 to $3.7 million in 2011 and 2012. This year, with a $900,000 grant, the city poured $4.6 million into street maintenance. And in 2014, the total is slated to rise to $5.7 million. Councilman Pat Burt, who chairs the Finance Committee, said at a May 16 budget hearing that he often finds himself at a newly paved street, makes a turn and finds another newly paved street and then makes another turn and finds more fresh paving. He lamented the fact that this accomplishment has largely gone unnoticed in the greater community. "The mindset of the community is that we still have lousy streets," Burt said. "We're right in the middle of pretty good progress on changing that." The new budget reflects the city's goal of raising its average Pavement Condition Index score to 85 (considered "very good") within 10 years, with no street having a PCI score less than 60. Some progress has already been made. In 2012, after Palo Alto repaved 22 miles of streets, its average score went up from 74 to 77.

WATER WOES — For Palo Alto's water customers, the price of drinking some of the cleanest water in the region is about to get steeper yet again. The city is one of 27 agencies that get water from the San Francisco Public Utilities Commission, which is in the midst of a $4 billion renovation of the Hetch Hetchy water system. The comprehensive, multi-year project means higher water rates for all member cities. At the same time, Palo Alto is pursuing its own capital improvements, including an underground reservoir in El Camino Park. All of this means a 7 percent hike in the city's residential water rates, which are already among the highest in the region. The change, which will take effect on July 1, will add about $5.19 to the average monthly residential bill, according to Utilities Department officials. But it's not all bad news for Palo Alto's utilities customers. While water rates may climb, gas and electric rates will both remain stable at least until July 2014.

GRAND PLANS — From downtown parking to climate protection, Palo Alto planners will be a busy bunch in the next fiscal year. The city has an ambitious list of strategic vision documents in the pipeline, including a community "vision" to determine the future of 27 University Ave. The downtown site, which currently hosts the MacArthur Park restaurant, is being eyed by developer John Arrillaga as a potential site for an office and theater complex. The budget allocates $250,000 in city funds for the process of planning for 27 University, and another $250,000 for separate studies evaluating downtown's potential for new development and feasible locations for new parking structures. In addition to these specific studies, planners are still plowing ahead with revisions to the city's Comprehensive Plan, a document that supposedly guides the city's land decisions and that's every bit as complex as the name implies. The budget earmarks $105,000 to complete the revisions and another $50,000 to update the city's Climate Protection plan.

THE SIREN SONG — Motorcycle cops were once a regular, traffic-calming presence near Palo Alto schools. Then the Great Recession happened and the once-mighty seven-member traffic-enforcement team was winnowed down to two officers and ultimately disbanded. Now that the city's revenues have recovered, the traffic team is making a comeback. Among the most dramatic budget changes in the new fiscal year is the "unfreezing" of seven positions in the Police Department, which has suffered more than its fair share of staff cuts during the recent period of austerity. The department will start with a three-person team, police Capt. Ron Watson told the Finance Committee on May 16, and possibly expand in the future. Palo Alto officers may also play a greater role inside the schools in the coming year. One budget recommendation is reinstating a school-resource officer position that was slashed in 2009, leaving one. If the Palo Alto Unified School District agrees to split with the city the cost of the $165,000 position, both Palo Alto and Gunn high schools will have a dedicated officer charged with forging stronger connections between the department and the school community.

THROUGH THE WIRE — Palo Alto's ultra-slow journey toward ultra-high-speed Internet could finally accelerate this year, not that local technologists are holding their breaths. The city has been exploring ways to bring high-speed Internet to every local residence since the late 1990s, when Palo Alto installed its underground fiber ring. But the grand, citywide project, known as "Fiber to the Premise," has been thwarted time and time again, a victim of economic uncertainties and the council's resistance to financial risk.

Now, the situation is changing. The city's fiber reserve, which collects revenues from about 80 subscribers, now stands at almost $15 million and is expected to roughly double by 2018. The council's attitude has also changed. Mayor Greg Scharff and Vice Mayor Nancy Shepherd have both expressed enthusiasm for rebooting the fiber project this year. The rest of the City Council is also on board, as evidenced by its choosing "Technology and the Connected City" as one of its three official priorities for 2013. The Utilities Advisory Commission, which voted 4-3 last summer to abort the city's fiber-expansion plan, is also back on board. "We didn't feel like we had a strong indication from the City Council where to take this," Commission Chair James Cook told the council's newly appointed Technology Committee on May 14. "I think that changed a lot from last year." Recent examples of citywide fiber networks, from Provo, Utah, to Chattanooga, Tenn., are another motivating force, belying Palo Alto's claim to be on the cutting edge of all things technological.

Even if "fiber to the premise" doesn't happen this year, the city's dark-fiber ring is hardly staying dormant. The city is now in the midst of expanding the ring to all 18 school facilities and to other locations that would allow new service connections.

MANAGEMENT SHUFFLE — This year, City Hall's managers will see some changes, both in personnel and in compensation. City Manager James Keene has recently added a few high-level positions to the City Hall organization, hiring the city's first airport manager, Andrew Swanson, and tapping former California State University executive Claudia Keith to serve as the city's new chief communications officer. The city is also in the final stages of hiring its first "chief sustainability officer" who will coordinate the carbon-reduction efforts of all departments. The city is also taking a closer look at managers' salaries this year and adjusting them to match those in other cities. The realignment, which has been years in the making, will result in a pay bump for those whose pay currently falls below the median level in surveyed jurisdictions.

THE NEXT CHAPTER — For Palo Alto libraries, what was supposed to be a "Golden Age" lost some of its sheen. Construction of the Mitchell Park Library and Community Center, which was originally slated to be completed last year, has fallen way behind and is now scheduled to conclude at the end of this year. With change orders mounting and the price tag rising, the city and its contractors are bracing for a legal battle to determine who screwed up what. At the same time, the city has closed Main Library for expansion and renovation (temporary libraries are at Cubberley Community Center and the Palo Alto Art Center). But if all goes as planned, the city's bookworms will have plenty of celebrating to do in fiscal year 2014. Of the three major projects that Palo Alto voters approved when they passed a $76 million bond in 2008, the first — Downtown Library — was renovated on time and below budget, reopening in the summer of 2011. Mitchell Park will have been completed this year, and Main will be in the works. Meanwhile, even though the Mitchell Park costs continue to rise, the city is saving some money — $151,713 in salaries — by decreasing its library operations during the construction.

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